Consumer confidence jumped to a two-year high this month, as Australians brushed off rate rise fears to concentrate on signals of a stronger economy.
The Westpac Melbourne Institute consumer sentiment index leaped 5.2 per cent in September, to the highest level since July 2007. The increase, the fourth in as many months, takes the index to 119.3 in September from 113.4 in August.
"For consumers, the good news on the economy is `drowning out' any warnings on rate rises," said Westpac chief economist Bill Evans in a statement. Mr Evans stressed that consumers were relieved the economy has remained strong despite earlier predictions of a recession.
"Given the extensive media coverage of likely rate hikes it is surprising that respondents are relatively evenly divided on their assessments of interest," he said.
Currently, markets are pricing in a 40 per cent chance of a 25 basis point increase to the interest rate in October. Such a move would add $40 to the average monthly payment on a $300,000 25-year home loan.
However, over the next 12 months, investors foresee the cash rate hitting 5 per cent, as the Reserve Bank begins moves rates above their current "emergency" level of 3 per cent.
The outlook for the Australian economy has also brightened recently with official data last week showing it expanded by 0.6 per cent in the second quarter, effectively avoiding the recession experienced elsewhere.
Retail sales, expected to have increased in July, and home loans, which analysts predict have declined over the same month, will be released at 11:30 this morning, giving a fresh read on the economy's conditions.
Also, this week the forward-looking ANZ job ads survey rose into positive territory for the first time since April 2008, spurring more hopes for a stronger jobs market in coming weeks.
czappone@fairfax.com.au
BusinessDay
